PLL-04/30/2013-Q3FY2013


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
R
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended April 30, 2013
or
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to

Commission File Number: 001- 04311
PALL CORPORATION
(Exact name of registrant as specified in its charter)

New York
 
11-1541330
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
   
25 Harbor Park Drive, Port Washington, NY
 
11050
(Address of principal executive offices)
 
(Zip Code)

(516) 484-5400
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer þ
Accelerated filer o
 
 
 
 
 
Non-accelerated filer o
Smaller reporting company o
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares of the registrant’s common stock outstanding as of May 30, 2013 was 111,573,016.




Table of Contents

 
 
Page No.
 
 
 
 
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)

 
Apr 30, 2013
 
Jul 31, 2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
903,967

 
$
500,274

Accounts receivable
554,125

 
655,436

Inventory
406,123

 
364,766

Prepaid expenses
64,910

 
40,814

Other current assets
122,605

 
154,650

Assets held for sale
—

 
136,517

Total current assets
2,051,730

 
1,852,457

Property, plant and equipment
757,339

 
750,993

Goodwill
342,177

 
338,941

Intangible assets
141,158

 
151,144

Other non-current assets
154,837

 
254,357

Total assets
$
3,447,241

 
$
3,347,892

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable
$
214,960

 
$
204,940

Accounts payable
150,009

 
184,868

Accrued liabilities
305,601

 
380,466

Income taxes payable
69,428

 
57,422

Current portion of long-term debt
427

 
453

Dividends payable
27,858

 
23,979

Total current liabilities
768,283

 
852,128

Long-term debt, net of current portion
467,616

 
490,706

Income taxes payable – non-current
122,919

 
161,684

Deferred taxes and other non-current liabilities
353,439

 
333,339

Total liabilities
1,712,257

 
1,837,857

 
 
 
 
Stockholders’ equity:
 
 
 
Common stock, par value $.10 per share
12,796

 
12,796

Capital in excess of par value
290,414

 
271,489

Retained earnings
2,234,667

 
1,840,926

Treasury stock, at cost
(754,569
)
 
(552,215
)
Stock option loans
—

 
(54
)
Accumulated other comprehensive income/(loss):
 
 
 
Foreign currency translation
105,858

 
97,663

Pension liability adjustment
(155,682
)
 
(164,444
)
Unrealized investment gains
3,459

 
3,604

Unrealized gains/(losses) on derivatives
(1,959
)
 
270

Total accumulated other comprehensive income/(loss)
(48,324
)
 
(62,907
)
Total stockholders’ equity
1,734,984

 
1,510,035

Total liabilities and stockholders’ equity
$
3,447,241

 
$
3,347,892


See accompanying notes to condensed consolidated financial statements.


3


PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2013
 
Apr 30, 2012
 
Apr 30, 2013
 
Apr 30, 2012
Net sales
$
641,190

 
$
657,976

 
$
1,931,245

 
$
1,949,285

Cost of sales
307,111

 
323,550

 
928,120

 
941,342

Gross profit
334,079

 
334,426

 
1,003,125

 
1,007,943

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
199,595

 
215,226

 
601,569

 
632,982

Research and development
22,608

 
20,780

 
68,582

 
60,351

Restructuring and other charges, net
12,824

 
2,861

 
21,497

 
31,001

Interest expense, net
5,298

 
6,351

 
10,747

 
17,682

Earnings from continuing operations before income taxes
93,754

 
89,208

 
300,730

 
265,927

Provision for income taxes
19,483

 
18,270

 
56,975

 
60,691

Net earnings from continuing operations
$
74,271

 
$
70,938

 
$
243,755

 
$
205,236

Earnings/(loss) from discontinued operations, net of income taxes
$
(1,206
)
 
$
7,980

 
$
245,552

 
$
27,866

Net earnings
$
73,065

 
$
78,918

 
$
489,307

 
$
233,102

 
 
 
 
 
 
 
 
Earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.66

 
$
0.61

 
$
2.16

 
$
1.77

Diluted
$
0.65

 
$
0.60

 
$
2.13

 
$
1.74

Earnings/(loss) per share from discontinued operations:
 
 
 
 
 
 
 
Basic
$
(0.01
)
 
$
0.07

 
$
2.17

 
$
0.24

Diluted
$
(0.01
)
 
$
0.07

 
$
2.15

 
$
0.24

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.65

 
$
0.68

 
$
4.33

 
$
2.01

Diluted
$
0.64

 
$
0.67

 
$
4.28

 
$
1.98

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.250

 
$
0.210

 
$
0.750

 
$
0.595

 
 
 
 
 
 
 
 
Average shares outstanding:
 
 
 
 
 
 
 
Basic
111,964

 
116,567

 
112,979

 
116,190

Diluted
113,311

 
118,358

 
114,415

 
117,817


See accompanying notes to condensed consolidated financial statements.


4


PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2013
 
Apr 30, 2012
 
Apr 30, 2013
 
Apr 30, 2012
 
 
 
 
 
 
 
 
Net earnings
$
73,065

 
$
78,918

 
$
489,307

 
$
233,102

Other comprehensive income/(loss), net of income taxes:
 
 
 
 
 
 
 
Foreign currency translation
(33,127
)
 
8,994

 
8,195

 
(56,986
)
Pension liability adjustment
4,199

 
905

 
8,762

 
8,690

Unrealized investment gains/(losses)
(208
)
 
(548
)
 
(145
)
 
(6,138
)
Unrealized gains/(losses) on derivatives
1,548

 
—

 
(2,229
)
 
—

Total other comprehensive income/(loss), net of income taxes
$
(27,588
)
 
$
9,351

 
$
14,583

 
$
(54,434
)
Comprehensive income
$
45,477

 
$
88,269

 
$
503,890

 
$
178,668


See accompanying notes to condensed consolidated financial statements.


5


PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Nine Months Ended
 
Apr 30, 2013
 
Apr 30, 2012
Operating activities:
 
 
 
Net cash provided by operating activities
$
206,890

 
$
326,417

 
 
 
 
Investing activities:
 
 
 
Capital expenditures
(66,387
)
 
(126,923
)
Acquisition of businesses
—

 
(167,638
)
Purchases of retirement benefit assets
(33,503
)
 
(33,805
)
Proceeds from retirement benefit assets
36,689

 
33,422

Proceeds from sale of assets
537,284

 
25,604

Other
(3,862
)
 
(9,666
)
Net cash provided/(used) by investing activities
470,221

 
(279,006
)
 
 
 
 
Financing activities:
 
 
 
Notes payable
10,020

 
(15,004
)
Dividends paid
(80,197
)
 
(64,554
)
Long-term borrowings
14

 
104

Repayments of long-term debt
(352
)
 
(390
)
Net proceeds from stock plans
31,054

 
34,845

Additions to deferred financing costs
(3,043
)
 
—

Purchase of treasury stock
(250,000
)
 
—

Excess tax benefits from stock-based compensation
arrangements
11,774

 
4,177

Net cash used by financing activities
(280,730
)
 
(40,822
)
Cash flow for period
396,381

 
6,589

Cash and cash equivalents at beginning of year
500,274

 
557,766

Effect of exchange rate changes on cash and cash
equivalents
7,312

 
(28,464
)
Cash and cash equivalents at end of period
$
903,967

 
$
535,891

Supplemental disclosures:
 
 
 
Interest paid
$
23,780

 
$
13,274

Income taxes paid (net of refunds)
133,417

 
75,401


See accompanying notes to condensed consolidated financial statements.


6

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)

NOTE 1 – BASIS OF PRESENTATION
The condensed consolidated financial information of Pall Corporation and its subsidiaries (hereinafter collectively called the “Company”) included herein is unaudited. Such information reflects all adjustments of a normal recurring nature, which are, in the opinion of Company management, necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows as of the dates and for the periods presented herein. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2012 (“2012 Form 10-K”). Certain prior year amounts have been reclassified to conform to the current year presentation.
As discussed in Note 17, Discontinued Operations, on August 1, 2012, the Company sold certain assets of its blood collection, filtration and processing product line, which was a component of the Company’s Life Sciences segment, and met the criteria for discontinued operations and held for sale presentation during the third quarter of fiscal year 2012. As such, it has been reported as a discontinued operation in the Company’s condensed consolidated financial statements for all periods presented.

NOTE 2 – BALANCE SHEET DETAILS
The following tables provide details of selected balance sheet items:
 
Apr 30, 2013
 
Jul 31, 2012
Accounts receivable:
 
 
 
Billed
$
494,887

 
$
584,449

Unbilled
74,765

 
82,720

Total
569,652

 
667,169

Less: Allowances for doubtful accounts
(15,527
)
 
(11,733
)
 
$
554,125

 
$
655,436

Unbilled receivables principally relate to revenues accrued for long-term contracts recorded under the percentage-of-completion method of accounting.
 
Apr 30, 2013
 
Jul 31, 2012
Inventory:
 
 
 
Raw materials and components
$
97,400

 
$
86,659

Work-in-process
107,157

 
92,427

Finished goods
201,566

 
185,680

 
$
406,123

 
$
364,766

Property, plant and equipment:
 
 
 
Property, plant and equipment
$
1,643,581

 
$
1,608,718

Less: Accumulated depreciation and amortization
(886,242
)
 
(857,725
)
 
$
757,339

 
$
750,993




7

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 3 – GOODWILL AND INTANGIBLE ASSETS
The following table presents goodwill, allocated by reportable segment.
 
Apr 30, 2013
 
Jul 31, 2012
Life Sciences
$
180,531

 
$
178,359

Industrial
161,646

 
160,582

 
$
342,177

 
$
338,941

Intangible assets, net, consist of the following:
 
Apr 30, 2013
 
Gross
 
Accumulated
Amortization
 
Net
Patents and unpatented technology
$
126,219

 
$
70,712

 
$
55,507

Customer-related intangibles
97,107

 
20,614

 
76,493

Trademarks
13,275

 
5,982

 
7,293

Other
4,457

 
2,592

 
1,865

 
$
241,058

 
$
99,900

 
$
141,158

 
 
 
 
 
 
 
Jul 31, 2012
 
Gross
 
Accumulated
Amortization
 
Net
Patents and unpatented technology
$
125,938

 
$
65,262

 
$
60,676

Customer-related intangibles
93,901

 
13,323

 
80,578

Trademarks
13,104

 
5,269

 
7,835

Other
5,179

 
3,124

 
2,055

 
$
238,122

 
$
86,978

 
$
151,144

Goodwill and intangible assets were primarily impacted by changes in the foreign exchange rates used to translate goodwill and intangible assets of foreign subsidiaries. Intangible assets were additionally impacted by the acquisition of a distributor in the third quarter of fiscal year 2013.
Amortization expense from continuing operations for intangible assets for the three and nine months ended April 30, 2013 was $4,765 and $14,900, respectively. Amortization expense from continuing operations for intangible assets for the three and nine months ended April 30, 2012 was $5,911 and $14,610, respectively (excluded is amortization expense included in discontinued operations for the three and nine months ended April 30, 2012 of $45 and $136, respectively). Amortization expense is estimated to be approximately $4,655 for the remainder of fiscal year 2013, $17,987 in fiscal year 2014, $16,114 in fiscal year 2015, $14,866 in fiscal year 2016, $14,787 in fiscal year 2017 and $14,639 in fiscal year 2018.


8

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 4 – TREASURY STOCK
The following table highlights the share repurchase authorizations in effect during fiscal year 2013:
 
 
Date of Authorization
 
 
Oct 16, 2008
 
Sep 26, 2011
 
Jan 17, 2013
 
Total
Amount available for repurchases as of July 31, 2012
 
$
81,873

 
$
250,000

 
$
—

 
$
331,873

New authorizations
 
—

 
—

 
250,000

 
250,000

Utilized
 
(81,873
)
 
(168,127
)
 
—

 
(250,000
)
Amount available for repurchases as of April 30, 2013
 
$
—

 
$
81,873

 
$
250,000

 
$
331,873

The Company’s shares may be purchased over time, as market and business conditions warrant. There is no time restriction on these authorizations. Total repurchases during the nine months ended April 30, 2013 were 3,971 shares at an aggregate cost of $250,000, with an average price per share of $62.95. Repurchased shares are held in treasury for use in connection with the Company’s stock plans and for general corporate purposes.
During the nine months ended April 30, 2013, 1,214 shares were issued under the Company’s stock-based compensation plans. At April 30, 2013, the Company held 16,527 treasury shares.

NOTE 5 – CONTINGENCIES AND COMMITMENTS
With respect to the matters described in Note 14, Contingencies and Commitments, to the Company’s consolidated financial statements included in the Company’s 2012 Form 10-K and as updated in Note 5, Contingencies and Commitments, to the Company’s condensed financial statements included on Form 10-Q for the second quarter of fiscal year 2013 and below, the Company has assessed the ultimate resolution of these matters and has reflected appropriate contingent liabilities and any related insurance recoveries of an equal amount in the condensed consolidated financial statements as of April 30, 2013 and July 31, 2012.
With respect to the matters previously disclosed in Note 14, Contingencies and Commitments, to the Company’s consolidated financial statements included in the Company’s 2012 Form 10-K under the heading Shareholder Derivative Lawsuits, the Company and the plaintiffs in each of the lawsuits have finalized a stipulation of settlement. The Court has scheduled a hearing in June to decide whether to approve the settlement. The settlement will not have a material impact on the Company’s consolidated financial statements.
The Company and its subsidiaries are subject to certain other legal actions that arise in the normal course of business. Other than those legal proceedings and claims discussed in the 2012 Form 10-K and this Note, the Company did not have any other current legal proceedings and claims that would individually or in the aggregate have a reasonably possible material adverse effect on its financial condition or operating results. As such, any reasonably possible loss or range of loss, other than those legal proceedings discussed in the 2012 Form 10-K and this Note, is immaterial. However, the results of legal proceedings cannot be predicted with certainty. If the Company failed to prevail in several of these legal matters in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.
Environmental Matters:
With respect to the environmental matters at the Company’s Glen Cove, New York site, previously disclosed in Note 14, Contingencies and Commitments to the Company’s consolidated financial statements included in the Company’s 2012 Form 10-K and updated in Note 5, Contingencies and Commitments, to the Company’s condensed financial statements included on Form 10-Q for the second quarter of fiscal year 2013, the Company, on March 14, 2013, submitted comments to the New York State Department of Environmental Conservation (“NYSDEC”) on the proposed remedial action plan provided by the NYSDEC for the contamination in the deep groundwater zone (“OU-2”) at the site. Thereafter, the NYSDEC issued a Record of Decision (“ROD”) outlining their proposed cleanup remedy for OU-2. As a result of this, the Company added approximately $2,500 to its environmental reserves in the quarter. The Company is currently reviewing the ROD in order to decide its plan of action.

9

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The Company’s condensed consolidated balance sheet at April 30, 2013 includes liabilities for environmental matters of approximately $13,060, which relate primarily to the environmental proceedings discussed in the 2012 Form 10-K and as updated in Note 5, Contingencies and Commitments, in the Company’s condensed financial statements included on Form 10-Q for the second quarter of fiscal year 2013 and this Note. In the opinion of management, the Company is in substantial compliance with applicable environmental laws and its current accruals for environmental remediation are adequate. However, as regulatory standards under environmental laws are becoming increasingly stringent, there can be no assurance that future developments, additional information and experience gained will not cause the Company to incur material environmental liabilities or costs beyond those accrued in its condensed consolidated financial statements.

NOTE 6 – RESTRUCTURING AND OTHER CHARGES, NET
The following tables summarize the restructuring and other charges (“ROTC”) recorded in the three and nine months ended April 30, 2013 and April 30, 2012:
 
Three Months Ended Apr 30, 2013
 
Nine Months Ended Apr 30, 2013
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
Severance benefits and other employment contract obligations
$
5,701

 
$
1,452

 
$
7,153

 
$
10,896

 
$
2,903

 
$
13,799

(Gain)/loss on sale and impairment of assets, net
999

 
1,357

 
2,356

 
993

 
1,357

 
2,350

Professional fees and other costs, net of receipt of insurance claim payments
361

 
531

 
892

 
1,149

 
2,117

 
3,266

Environmental matters
—

 
2,715

 
2,715

 
—

 
2,715

 
2,715

Reversal of excess restructuring reserves
(292
)
 
—

 
(292
)
 
(633
)
 
—

 
(633
)
 
$
6,769

 
$
6,055

 
$
12,824

 
$
12,405

 
$
9,092

 
$
21,497

 
 
 
 
 
 
 
 
 
 
 
 
Cash
$
5,770

 
$
4,185

 
$
9,955

 
$
11,007

 
$
6,709

 
$
17,716

Non-cash
999

 
1,870

 
2,869

 
1,398

 
2,383

 
3,781

 
$
6,769

 
$
6,055

 
$
12,824

 
$
12,405

 
$
9,092

 
$
21,497


10

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended Apr 30, 2012
 
Nine Months Ended Apr 30, 2012
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
 
Restructuring
(1)
 
Other
(Gains)/
Charges
(2)
 
Total
Severance benefits and other employment contract obligations
$
953

 
$
2,604

 
$
3,557

 
$
29,255

 
$
11,436

 
$
40,691

(Gain)/loss on sale and impairment of assets, net
—

 
(2,168
)
 
(2,168
)
 
(1,515
)
 
(11,364
)
 
(12,879
)
Professional fees and other costs, net of receipt of insurance claim payments
1,755

 
(252
)
 
1,503

 
3,121

 
145

 
3,266

Reversal of excess restructuring reserves
(31
)
 
—

 
(31
)
 
(77
)
 
—

 
(77
)
 
$
2,677

 
$
184

 
$
2,861

 
$
30,784

 
$
217

 
$
31,001

 
 
 
 
 
 
 
 
 
 
 
 
Cash
$
2,677

 
$
(942
)
 
$
1,735

 
$
30,784

 
$
(3,446
)
 
$
27,338

Non-cash
—

 
1,126

 
1,126

 
—

 
3,663

 
3,663

 
$
2,677

 
$
184

 
$
2,861

 
$
30,784

 
$
217

 
$
31,001

(1) Restructuring:
Restructuring charges recorded in the three and nine months ended April 30, 2013 reflect the expenses incurred in connection with the Company’s structural cost improvement initiatives impacting both segments as well as the Corporate Services Group.
Restructuring charges recorded in the three and nine months ended April 30, 2012 reflect the expenses incurred in connection with the Company’s cost reduction initiatives, primarily in the Industrial segment. Restructuring charges in the nine months ended April 30, 2012 also includes a gain on the divestiture of a non-strategic asset group.
(2) Other (Gains) / Charges:
Severance benefits and other employment contract obligations:
In the three and nine months ended April 30, 2013 and April 30, 2012, the Company recorded charges related to certain employment contract obligations.
Gain/loss on sale and impairment of assets, net:
In the three months ended April 30, 2013 the Company recorded an impairment related to a software project.
In the three months ended April 30, 2012 the Company recorded a gain on the sale of assets related to a sale of a building in Europe. The nine months ended April 30, 2012 also includes a gain of $9,196 on the sale of the Company’s investment in Satair A/S.
Professional fees and other:
In the three and nine months ended April 30, 2013, the Company recorded legal and other professional fees, as well as adjustments to settlement reserves, related to the Federal Securities Class Actions, Shareholder Derivative Lawsuits and Other Proceedings (see Note 14, Contingencies and Commitments in the 2012 Form 10-K) which pertain to matters that had been under audit committee inquiry as discussed in Note 2, Audit Committee Inquiry and Restatement, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2007 (“2007 Form 10-K”). The receipt of insurance claim payments partly offset the costs discussed above in the nine months ended April 30, 2013.
In the three and nine months ended April 30, 2012, the Company recorded legal and other professional fees, related to the matters discussed above. Furthermore, in the nine months ended April 30, 2012, the Company recorded settlement related costs pertaining to these matters. The receipt of insurance claim payments more than offset these costs in the three months ended April 30, 2012 and offset the majority of such costs in the nine months ended April 30, 2012.

11

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The three and nine months ended April 30, 2013 also includes a loss related to a fire at a manufacturing facility and costs related to the demolition of a vacant facility.
Environmental Matters:
In the three months ended April 30, 2013, the Company increased its environmental reserves primarily related to a matter at its Glen Cove, New York site, as discussed in Note 5, Contingencies and Commitments above.
The following table summarizes the activity related to restructuring liabilities recorded for the Company’s structural cost improvement initiatives and Industrial cost reduction initiatives which began in fiscal year 2012:
 
Severance
 
Other
 
Total
 
 
 
 
 
 
Original charge
$
61,852

 
$
3,448

 
$
65,300

Utilized
(27,365
)
 
(2,798
)
 
(30,163
)
Translation
(123
)
 
(47
)
 
(170
)
Balance at Jul 31, 2012
$
34,364

 
$
603

 
$
34,967

Additions
10,896

 
1,149

 
12,045

Utilized
(24,672
)
 
(1,314
)
 
(25,986
)
Reversal of excess reserves
(500
)
 
(57
)
 
(557
)
Translation
234

 
11

 
245

Balance at Apr 30, 2013
$
20,322

 
$
392

 
$
20,714

Excluded from the table above are restructuring liabilities relating to restructuring plans initiated in fiscal years 2009 and 2010. At April 30, 2013, the balance of these liabilities was $319.

NOTE 7 – INCOME TAXES
The Company’s effective tax rate on continuing operations for the nine months ended April 30, 2013 and April 30, 2012 was 18.9% and 22.8%, respectively. For the nine months ended April 30, 2013, the effective tax rate varied from the U.S. federal statutory rate primarily due to the benefits of foreign operations and a net tax benefit of $7,757 primarily from the resolution of a U.S. tax audit partly offset by the establishment of deferred tax liabilities for the repatriation of foreign earnings. For the nine months ended April 30, 2012, the effective tax rate varied from the U.S. federal statutory rate primarily due to the benefits of foreign operations.
During the nine months ended April 30, 2013, the Company reached a final agreement with the Internal Revenue Service (“IRS”) resolving the outstanding tax positions for fiscal years ended 2006 through 2008. As a result, the Company reversed $10,193 of previously recorded liabilities related to tax and penalties, as well as $6,704 related to interest ($4,268 net of income tax cost) that were accrued but not assessed as part of the IRS agreement.
At April 30, 2013 and July 31, 2012, the Company had gross unrecognized income tax benefits of $186,152 and $194,829, respectively. During the nine months ended April 30, 2013, the amount of gross unrecognized tax benefits decreased by $8,677, primarily due to the settlement of the IRS income tax examinations for fiscal years ended 2006 through 2008, partially offset by tax positions taken during the current period and the impact of foreign currency translation. As of April 30, 2013, the amount of net unrecognized income tax benefits that, if recognized, would impact the effective tax rate was $136,069.
At April 30, 2013 and July 31, 2012, the Company had liabilities of $18,194 and $25,314, respectively, for potential payment of interest and penalties.
Due to the potential resolution of tax examinations and the expiration of various statutes of limitation, the Company believes that it is reasonably possible that the gross amount of unrecognized tax benefits may decrease within the next twelve months by a range of zero to $74,128.

12

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 8 – COMPONENTS OF NET PERIODIC PENSION COST
Net periodic pension benefit cost for the Company’s defined benefit pension plans includes the following components (included in the table below is net periodic benefit cost included in discontinued operations for the three and nine months ended April 30, 2012 of $185 and $552, respectively):
 
Three Months Ended
 
U.S. Plans
 
Foreign Plans
 
Total
 
Apr 30, 2013
 
Apr 30, 2012
 
Apr 30, 2013
 
Apr 30, 2012
 
Apr 30, 2013
 
Apr 30, 2012
Service cost
$
2,648

 
$
2,231

 
$
1,093

 
$
1,157

 
$
3,741

 
$
3,388

Interest cost
2,617

 
3,052

 
3,899

 
4,527

 
6,516

 
7,579

Expected return on plan assets
(2,383
)
 
(2,303
)
 
(3,937
)
 
(3,908
)
 
(6,320
)
 
(6,211
)
Amortization of prior service cost/(credit)
392

 
374

 
(12
)
 
(31
)
 
380

 
343

Amortization of actuarial loss
2,411

 
1,546

 
1,358

 
1,312

 
3,769

 
2,858

Loss due to curtailments and settlements
16

 
—

 
—

 
—

 
16

 
—

Net periodic benefit cost
$
5,701

 
$
4,900

 
$
2,401

 
$
3,057

 
$
8,102

 
$
7,957

 
Nine Months Ended
 
U.S. Plans
 
Foreign Plans
 
Total
 
Apr 30, 2013
 
Apr 30, 2012
 
Apr 30, 2013
 
Apr 30, 2012
 
Apr 30, 2013
 
Apr 30, 2012
Service cost
$
7,943

 
$
6,693

 
$
3,443

 
$
3,548

 
$
11,386

 
$
10,241

Interest cost
7,852

 
9,699

 
11,965

 
13,643

 
19,817

 
23,342

Expected return on plan assets
(7,150
)
 
(6,909
)
 
(12,158
)
 
(11,727
)
 
(19,308
)
 
(18,636
)
Amortization of prior service cost/(credit)
1,178

 
1,405

 
(44
)
 
(98
)
 
1,134

 
1,307

Amortization of actuarial loss
7,233

 
6,546

 
4,170

 
3,944

 
11,403

 
10,490

Loss due to curtailments and settlements
49

 
—

 
—

 
—

 
49

 
—

Net periodic benefit cost
$
17,105

 
$
17,434

 
$
7,376

 
$
9,310

 
$
24,481

 
$
26,744


NOTE 9 – STOCK–BASED PAYMENT
The Company currently has four stock-based employee and director compensation award types (Restricted Stock Unit, Stock Option Plans, Management Stock Purchase Plan (“MSPP”), and Employee Stock Purchase Plan (“ESPP”)), which are more fully described in Note 15, Common Stock, to the consolidated financial statements included in the 2012 Form 10-K.
The detailed components of stock-based compensation expense recorded in the condensed consolidated statements of earnings for the three and nine months ended April 30, 2013 and April 30, 2012 are reflected in the table below (excluded from the table below is stock-based compensation expense included in discontinued operations for the three and nine months ended and April 30, 2012 of $165 and $496, respectively):
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2013
 
Apr 30, 2012
 
Apr 30, 2013
 
Apr 30, 2012
Restricted stock units
$
3,978

 
$
4,541

 
$
11,895

 
$
13,880

Stock options
1,825

 
2,013

 
4,503

 
5,208

ESPP
302

 
1,415

 
992

 
3,980

MSPP
976

 
1,027

 
2,763

 
3,131

      Total
$
7,081

 
$
8,996

 
$
20,153

 
$
26,199


13

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 10 – EARNINGS PER SHARE
The condensed consolidated statements of earnings present basic and diluted earnings per share. Basic earnings per share is determined by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share considers the potential effect of dilution on basic earnings per share assuming potentially dilutive shares that meet certain criteria, such as those issuable upon exercise of stock options, were outstanding. The treasury stock method reduces the dilutive effect of potentially dilutive securities as it assumes that any cash proceeds (from the issuance of potentially dilutive securities) are used to buy back shares at the average share price during the period. Employee stock options and restricted stock units aggregating 742 and 575 shares were not included in the computation of diluted shares for the three months ended April 30, 2013 and April 30, 2012, respectively, because their effect would have been antidilutive. For the nine months ended April 30, 2013 and April 30, 2012, 586 and 862 antidilutive shares, respectively, were excluded. The following is a reconciliation between basic shares outstanding and diluted shares outstanding:
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2013
 
Apr 30, 2012
 
Apr 30, 2013
 
Apr 30, 2012
Basic shares outstanding
111,964

 
116,567

 
112,979

 
116,190

Effect of stock plans
1,347

 
1,791

 
1,436

 
1,627

Diluted shares outstanding
113,311

 
118,358

 
114,415

 
117,817


NOTE 11 – FAIR VALUE MEASUREMENTS
The Company records certain of its financial assets and liabilities at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
The current authoritative guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). Authoritative guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
•
Level 1: Use of observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
•
Level 2: Use of inputs other than quoted prices included in Level 1, which are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
•
Level 3: Use of inputs that are unobservable.

14

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The following table presents, for each of these hierarchy levels, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of April 30, 2013:
 
Fair Value Measurements
 
As of
 
 
 
 
 
 
 
Apr 30, 2013
 
Level 1
 
Level 2
 
Level 3
Financial assets carried at fair value
 
 
 
 
 
 
 
Money market funds
$
3,852

 
$
3,852

 
$
—

 
$
—

Available-for-sale securities:
 
 
 
 
 
 
 
Equity securities
177

 
177

 
—

 
—

Debt securities:
 
 
 
 
 
 
 
Corporate
32,920

 
—

 
32,920

 
—

U.S. Treasury
9,231

 
—

 
9,231

 
—

Federal Agency
24,181

 
—

 
24,181

 
—

Mortgage-backed
6,129

 
—

 
6,129

 
—

Municipal government
1,000

 
—

 
1,000

 
—

Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
2,537

 
—

 
2,537

 
—

Financial liabilities carried at fair value
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
2,024

 
—

 
2,024

 
—


The following table presents, for each of these hierarchy levels, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of July 31, 2012:
 
Fair Value Measurements
 
As of
 
 
 
 
 
 
 
Jul 31, 2012
 
Level 1
 
Level 2
 
Level 3
Financial assets carried at fair value
 
 
 
 
 
 
 
Money market funds
$
4,684

 
$
4,684

 
$
—

 
$
—

Available-for-sale securities:
 
 
 
 
 
 
 

Equity securities
206

 
206

 
—

 
—

Debt securities:
 
 
 
 
 
 
 
Corporate
32,378

 
—

 
32,378

 
—

U.S. Treasury
8,610

 
—

 
8,610

 
—

Federal Agency
27,231

 
—

 
27,231

 
—

Mortgage-backed
6,392

 
—

 
6,392

 
—

Municipal government
1,004

 
—

 
1,004

 
—

Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
3,778

 
—

 
3,778

 
—

Financial liabilities carried at fair value
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
1,457

 
—

 
1,457

 
—


The Company’s money market funds and equity securities are valued using quoted market prices and, as such, are classified within Level 1 of the fair value hierarchy.

15

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The fair value of the Company’s investments in debt securities are valued utilizing third party pricing services and verified by management. The pricing services use inputs to determine fair value which are derived from observable market sources including reportable trades, benchmark curves, credit spreads, broker/dealer quotes, bids, offers, and other industry and economic events. These investments are included in Level 2 of the fair value hierarchy.
The fair values of the Company’s foreign currency forward contracts are valued using pricing models, with all significant inputs derived from or corroborated by observable market data such as yield curves, currency spot and forward rates, and currency volatilities. These investments are included in Level 2 of the fair value hierarchy.
The Company completed its annual goodwill impairment test for all reporting units in the third quarter of fiscal year 2013 and determined that no impairment existed. In addition, the Company had no impairment of goodwill in the prior year. In connection with the annual goodwill impairment test, the Company estimates the fair value of its reporting units using a market approach employing level 3 inputs as defined in the fair value hierarchy.

NOTE 12 – INVESTMENT SECURITIES
The following is a summary of the Company’s available-for-sale investment securities by category which are classified within other non-current assets in the Company’s condensed consolidated balance sheets. Contractual maturity dates of debt securities held by the trust at April 30, 2013 range from 2013 to 2044.
 
Cost/
Amortized
Cost Basis
 
Fair Value
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Net Unrealized
Holding
Gains/(Losses)
April 30, 2013
 
 
 
 
 
 
 
 
 
Equity securities
$
176

 
$
177

 
$
1

 
$
—

 
$
1

Debt securities:
 
 
 
 
 
 
 
 
 
Corporate
31,032

 
32,920

 
1,905

 
(17
)
 
1,888

U.S. Treasury
8,748

 
9,231

 
488

 
(5
)
 
483

Federal agency
22,698

 
24,181

 
1,543

 
(60
)
 
1,483

Mortgage-backed
5,775

 
6,129

 
374

 
(20
)
 
354

Municipal government
1,000

 
1,000

 
—

 
—

 
—

 
$
69,429

 
$
73,638

 
$
4,311

 
$
(102
)
 
$
4,209

 
 
 
 
 
 
 
 
 
 
July 31, 2012
 
 
 
 
 
 
 
 
 
Equity securities
$
212

 
$
206

 
$
—

 
$
(6
)
 
$
(6
)
Debt securities:
 
 
 
 
 
 
 
 
 
Corporate
30,548

 
32,378

 
1,838

 
(8
)
 
1,830

U.S. Treasury
8,049

 
8,610

 
562

 
(1
)
 
561

Federal agency
25,454

 
27,231

 
1,777

 
—

 
1,777

Mortgage-backed
6,129

 
6,392

 
290

 
(27
)
 
263

Municipal government
1,000

 
1,004

 
4

 
—

 
4

 
$
71,392

 
$
75,821

 
$
4,471

 
$
(42
)
 
$
4,429


16

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
 
Less than 12 months
 
12 months or greater
 
Total
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
April 30, 2013
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate
$
2,476

 
$
(17
)
 
$
—

 
$
—

 
$
2,476

 
$
(17
)
U.S. Treasury
401

 
(5
)
 
—

 
—

 
401

 
(5
)
Mortgage-backed
—

 
—

 
1,509

 
(20
)
 
1,509

 
(20
)
Federal agency
2,441

 
(60
)
 
—

 
—

 
2,441

 
(60
)
 
$
5,318

 
$
(82
)
 
$
1,509

 
$
(20
)
 
$
6,827

 
$
(102
)
 
Less than 12 months
 
12 months or greater
 
Total
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
 
Gross
Unrealized
Holding
Losses
July 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed
$
—

 
$
—

 
$
1,504

 
$
(27
)
 
$
1,504

 
$
(27
)
U.S. Treasury
589

 
(1
)
 
—

 
—

 
589

 
(1
)
Corporate
—

 
—

 
462

 
(8
)
 
462

 
(8
)
Equity securities
27

 
(6
)
 
—

 
—

 
27

 
(6
)
 
$
616

 
$
(7
)
 
$
1,966

 
$
(35
)
 
$
2,582

 
$
(42
)
The following table shows the proceeds and gross gains and losses from the sale of available-for-sale investments for the three and nine months ended April 30, 2013 and April 30, 2012:
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2013
 
Apr 30, 2012
 
Apr 30, 2013
 
Apr 30, 2012
Proceeds from sales
$
883

 
$
5,473

 
$
13,169

 
$
26,700

Realized gross gains on sales
18

 
176

 
370

 
9,654

Realized gross losses on sales
—

 
12

 
5

 
28


17

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

NOTE 13 – REVOLVING CREDIT FACILITY
On April 11, 2013, the Company entered into a five-year $1,200,000 unsecured senior revolving credit facility (the “New Facility”) with a syndicate of banks, which expires on April 11, 2018. The Company terminated its existing $500,000 senior revolving credit facility, which would have expired in fiscal year 2015 (the “Prior Facility”). In connection with the New Facility, the Company incurred deferred financing costs of $3,043, which will be amortized to interest expense over the term of the New Facility. There were no amounts outstanding against the Prior Facility or the New Facility for any of the periods presented. Letters of credit outstanding against the New Facility as of April 30, 2013 were approximately $7,242.
Borrowings under the New Facility bear interest at either a variable rate based upon the London InterBank Offered Rate (U.S. dollar, British Pound, Euro, Swiss Franc and Japanese Yen borrowings) or the European Union Banking Federation Rate (Euro borrowings) or at the prime rate of the Facility Agent (U.S. dollar borrowing only). The New Facility requires the Company to maintain a consolidated leverage ratio (Consolidated Funded Debt to Earnings Before Net Interest, Taxes, Depreciation, Amortization and the Non-Cash Portion of Non-Recurring Charges and Income (“EBITDA”)) not to exceed 3.50 to 1.00, based upon the trailing four quarters' results.
In addition, the New Facility includes other covenants that under certain circumstances may restrict the Company’s ability to incur additional indebtedness, make investments and other restricted payments, enter into sale and leaseback transactions, create liens and sell assets. As of April 30, 2013, the Company was in compliance with all related financial and other restrictive covenants, including limitations on indebtedness.
NOTE 14 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company manages certain financial exposures through a risk management program that includes the use of foreign exchange and interest rate derivative financial instruments. Derivatives are executed with counterparties with a minimum credit rating of “A” by Standard & Poors and Moody’s Investor Services, in accordance with the Company’s policies. The Company does not utilize derivative instruments for trading or speculative purposes.
Foreign Exchange Related:
a. Derivatives Not Designated as Hedging Instruments
The risk management objective of holding foreign exchange derivatives is to mitigate volatility to earnings and cash flows due to changes in foreign exchange rates. The Company and its subsidiaries conduct transactions in currencies other than their functional currencies. These transactions include non-functional intercompany and external sales as well as intercompany and external purchases. The Company uses foreign exchange forward contracts, matching the notional amounts and durations of the receivables and payables resulting from the aforementioned underlying foreign currency transactions, to mitigate the exposure to earnings and cash flows caused by the changes in fair value of these receivables and payables from fluctuating foreign exchange rates. The notional amount of foreign currency forward contracts entered into during the three and nine months ended April 30, 2013 was $643,813 and $1,867,299. The notional amount of foreign currency forward contracts outstanding as of April 30, 2013, including the cash flow hedges discussed below, was $353,589.
b. Cash Flow Hedges
The Company uses foreign exchange forward contracts for cash flow hedging on its future transactional exposure to the Euro due to changes in market rates to exchange Euros for British Pounds. The hedges cover a British subsidiary (British Pound functional) with Euro revenues and a Swiss subsidiary (Euro functional) with British Pound expenses. The probability of the occurrence of these transactions is high and the Company’s assessment is based on observable facts including the frequency and amounts of similar past transactions. The objective of the cash flow hedges is to lock the British Pound equivalent amount of Euro sales for the British subsidiary and the Euro equivalent amount of British Pound expenses for the Swiss subsidiary at the agreed upon exchange rates in the foreign exchange forward contracts. The notional amount of foreign currency forward contracts outstanding as of April 30, 2013 was $63,968 and covers certain monthly transactional exposures through February 2014.

18

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

c. Net Investment Hedges
The risk management objective of designating the Company’s foreign currency loan as a hedge of a portion of its net investment in a wholly owned Japanese subsidiary is to mitigate the change in the fair value of the Company’s net investment due to changes in foreign exchange rates. The Company uses a JPY loan outstanding to hedge its equity of the same amount in the Japanese wholly owned subsidiary. The hedge of net investment consists of a JPY 9 billion loan.
Interest Rate Related:
As of April 30, 2013, there are no existing interest rate related derivatives.
The fair values of the Company’s derivative financial instruments included in the condensed consolidated balance sheets are presented as follows:
 
Asset Derivatives
 
Liability Derivatives
April 30, 2013
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
165

 
Other current liabilities
 
$
1,433

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
2,372

 
Other current liabilities
 
$
591

Total derivatives
 
 
$
2,537

 
 
 
$
2,024

Nonderivative instruments designated as hedging instruments
 
 
 
 
 
 
 
Net investment hedge
 
 
 
 
Long-term debt, net of current portion
 
$
92,070

 
Asset Derivatives
 
Liability Derivatives
July 31, 2012
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
270

 
Other current liabilities
 
$
—

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
$
3,508

 
Other current liabilities
 
$
1,457

Total derivatives
 
 
$
3,778

 
 
 
$
1,457

Nonderivative instruments designated as hedging instruments
 
 
 
 
 
 
 
Net investment hedge
 
 
 
 
Long-term debt, net of current portion
 
$
115,129


19

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments for the three and nine months ended April 30, 2013 and April 30, 2012 are presented as follows:
 
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
 
Location of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion) (a)
 
Three Months Ended
 
 
 
Three Months Ended
 
Apr 30, 2013
 
Apr 30, 2012
 
 
 
Apr 30, 2013
 
Apr 30, 2012
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
1,548

 
$
—

 
Net sales
 
$
(615
)
 
$
—

 
 
 
 
 
Cost of sales
 
(537
)
 
—

Total derivatives
$
1,548

 
$
—

 
 
 
$
(1,152
)
 
$
—

 
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
 
Location of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion) (a)
 
Nine Months Ended
 
 
 
Nine Months Ended
 
Apr 30, 2013
 
Apr 30, 2012
 
 
 
Apr 30, 2013
 
Apr 30, 2012
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
(2,229
)
 
$
—

 
Net sales
 
$
(1,002
)
 
$
—

 
 
 
 
 
Cost of sales
 
(707
)
 
—

Total derivatives
$
(2,229
)
 
$
—

 
 
 
$
(1,709
)
 
$
—

(a)
There were no gains or losses recognized in earnings related to the ineffective portion of the hedging relationship or related to the amount excluded from the assessment of hedge effectiveness for the three and nine months ended April 30, 2013 and April 30, 2012.
The amounts of the gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments for the three and nine months ended April 30, 2013 and April 30, 2012 are presented as follows:
 
 
 
Amount of Gain or (Loss) Recognized in
Earnings on Derivatives
 
 
 
Three Months Ended
 
Nine Months Ended
 
Location of Gain or (Loss) Recognized in Earnings on Derivatives
 
Apr 30, 2013
 
Apr 30, 2012
 
Apr 30, 2013
 
Apr 30, 2012
Derivatives not designated as hedging relationships
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
Selling, general and administrative expenses
 
$
(5,206
)
 
$
1,836

 
$
(15,032
)
 
$
7,998


20

PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The amounts of the gains and losses related to the Company’s nonderivative financial instruments designated as hedging instruments for the three and nine months ended April 30, 2013 and April 30, 2012 are presented as follows:
 
Amount of Gain or (Loss)
Recognized in OCI on Derivatives
(Effective Portion)
 
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Earnings
(Effective Portion)
 
Amount of Gain or (Loss) Reclassified from
Accumulated OCI into Earnings
(Effective Portion) (b)
 
Three Months Ended
 
 
 
Three Months Ended
 
Apr 30, 2013
 
Apr 30, 2012
 
 
 
Apr 30, 2013
 
Apr 30, 2012
Nonderivatives designated as hedging relationships
 
 
 
 
 
 
 
 
 
Net investment hedge
$
4,320

 
$
3,688

 
N/A
 
$
—

 
$
—

 
Amount of Gain or (Loss)
Recognized in OCI on Derivatives
(Effective Portion)
 
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Earnings
(Effective Portion)
 
Amount of Gain or (Loss) Reclassified from
Accumulated OCI into Earnings
(Effective Portion) (b)
 
Nine Months Ended
 
 
 
Nine Months Ended
 
Apr 30, 2013
 
Apr 30, 2012
 
 
 
Apr 30, 2013
 
Apr 30, 2012
Nonderivatives designated as hedging relationships
 
 
 
 
 
 
 
 
 
Net investment hedge
$
14,757

 
$
2,352

 
N/A
 
$
—

 
$
—

(b)
There were no gains or losses recognized in earnings related to the ineffective portion of the hedging relationship or related to the amount excluded from the assessment of hedge effectiveness for the three and nine months ended April 30, 2013 and April 30, 2012.

NOTE 15 – COMPONENTS OF OTHER COMPREHENSIVE INCOME
 
Three Months Ended
 
Nine Months Ended
 
Apr 30, 2013
 
Apr 30, 2012
 
Apr 30, 2013
 
Apr 30, 2012
Unrealized translation adjustment
$
(30,145
)
 
$
11,557

 
$
17,019

 
$
(54,113
)
Income taxes
(2,982
)
 
(2,563
)
 
(8,824
)
 
(2,873
)
Unrealized translation adjustment, net
$
(33,127
)
 
$
8,994

 
$
8,195

 
$
(56,986
)
 
 
 
 
 
 
 
 
Pension liability adjustment
$
6,060

 
$
(477
)
 
$
12,946

 
$
12,890

Income taxes
(1,861
)
 
1,382

 
(4,184
)
 
(4,200
)
Pension liability adjustment, net
$
4,199

 
$
905

 
$
8,762

 
$
8,690

 
 
 
 
 
 
 
 
Change in unrealized investment gains/(losses)
$
(327
)
 
$
(763
)
 
$
(220
)
 
$
(9,557
)
Income taxes
119

 
215

 
75

 
3,419

Change in unrealized investment gains/(losses), net
$
(208
)
 
$
(548
)
 
$
(145
)
 
$
(6,138
)